Reading Between the Lines: Market Signals from Media Coverage

by John DePutter, Sept 4th, 2012

In recent newsletters for our subscribers, I predicted that the drought-driven bull markets would eventually attract a lot of media coverage. Coverage about the drought’s impact on food prices. About food security. About climate change, even.

It’s happening.

Hardly a day goes by that we don’t see a drought-related story. I’ve seen picture after picture of withered corn fields. I noticed a recent comment in an Ottawa paper about how the drought was going to cause skyrocketing food prices and the governments of the world should do something about it. There have also been articles about how this drought is not just a one-off event but a sign of more dooming climatic problems to come. There have also been some recent stories (such as those referenced here) about how people could be forced into vegetarianism, for lack of meat to eat. What’s quite popular is advice on which agricultural stocks to buy, in order to profit from the grain price boom and impending food shortages.

If you’re a farmer, you need to realize that this sort of thing is sometimes a sign of a market top. When it’s the flavor of the day for discussions by urban media, the bull markets are usually either over or close to being over.

If you’re an investor, be careful about buying in late. By the time the news stories are telling you it’s a no-brainer to invest in ag stocks or farm-related stuff, the best deals are long gone and you’re no longer looking at true value-based buying opportunities.

If you’re a consumer, don’t panic. You’re getting a great deal for food these days. North Americans pay a lesser percentage of disposable incomes than people anywhere. Remember too, that the actual grain in a loaf of bread or box of cereal is usually less than the transportation to get that to the store shelf, less than the marketing/advertising, and often too it’s even less than the package it’s in. That said, I do think one big impact of the drought could eventually be higher meat prices, because the expensive grain is knocking meat producers out of business.

If you’re worried about food security and climate change, just remember that farmers have shown an incredible capacity for rising the challenge of adapting to world demand for food.

If you’re running a business sitting somewhere in the chain between the farmer and consumer, remember that agriculture is cyclical and weather dependent and there will be crop price swings in various directions in the future – this is part of the history of food production.